Saving for a house is easier but takes longer than 30 years ago

New Zealand Property Investors Federation (NZPIF) has updated their numbers on how house buying in 2015 compares with 30 years earlier and found that things are actually not that bad.

While house prices had increased considerably faster than incomes, this was offset by lower mortgage interest rates and other factors like Kiwisaver, rental prices and lower income tax rates.

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“This doesn’t mean that it is easy to buy a home today, rather than it has always been difficult but for different reasons,” NZPIF executive director Andrew King said. King said the federation wrote the report because people were being misled into thinking buying a house was unattainable. Unaffordability was being measured with income to house price ratios or by comparing rents to house prices. But other important factors were being left out, such as mortgage rates, which dropped significantly since 1985 and meant house buyers could service more debt. Marginal tax rates and rents relative to incomes had also fallen, meaning there was more disposable income to save. Kiwisaver and First Home Owners Grants had also become available to help with deposits, replacing an assistance programme which was withdrawn in 1986. The report used a “before” average home price, noting that first home buyers would probably go for a lower priced house, and assumed a 20 per cent deposit. Average house prices had jumped from $80,000 in 1985 to $460,000 in 2015, an increase of 475 per cent.

They rose faster than income which rose from $23,542 to $61,173, an increase of 160 per cent.

This bumped up the house price to income ratio from 3.4 to 7.5, but mortgage rates fell markedly in this time, from nearly 19 per cent in 1985 to 5.6 per cent in 2015.

Mortgage costs increased 124 per cent, but they made up a smaller proportion of the average income, falling from 52 per cent to 45 per cent.

Other influences not considered in the survey were the increasing size of houses and the negative impact of student loans on first-home buyers’ borrowing.

The one thing that was clearly harder for today’s home buyers was the length of time it took to save a deposit.

Would-be home owners needed a deposit of $16,000 in 1985, which rose to $92,000 in 2015.

With rent and tax factored in, it took 4 years to save a deposit in 1985 and 7 years in 2015.

That was a improvement from the 7.5 years it took in 2005, before Kiwisaver was introduced.

People were also saving money on rent. Rent rose over time from $190 to $380 but became a smaller part of one’s overall income, falling from 42 per cent of the average 40-hour a week wage to to 32 per cent.

Although there had always been obstacles for first home buyers, King said the study proved recent first home buyers were not facing the worst combined conditions in the time period of the study.

“In fact they were not the worst conditions for either saving for a deposit or serviceability of the mortgage.”

He hoped commentators on housing affordability would stop condemning people to renting for life.

“Being told that they cannot achieve home ownership is likely to stop potential first home buyers from even trying.”

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